More Than Taxes at Play in Burger King, Tim Hortons Deal

A merger of Burger King and Tim Hortons would serve up plenty of tax perks for the Whopper king, but may also come with a tasty side: an exit ramp for its private-equity backers.

The deal, structured as a so-called tax inversion, would let Burger King relocate to Canada, home to Tim Hortons and a newly lowered 15% corporate tax rate. But at least one analyst says it might be more about creating liquidity for Brazilian buyout shop 3G Capital Management, which took Burger King private in 2010 and still owns 69% of its stock.

Another 12% is owned by Bill Ackman’s Pershing Square Capital Management, leaving a small chunk in public hands. That has limited 3G’s ability to sell down, and has kept Burger King from being a household name among big institutional investors, writes Don Bilson, an analyst at Gordon Haskett.

Enter the inversion. To be legal, these deals must result in at least 20% of the combined company’s stock in the hands of new foreign holders. That would create a deeper trading pool that could help 3G sell down in the future. “We see this as a meaningful side-benefit,” Mr. Bilson writes.

3G plans to keep a majority stake in the combined entity for now, Burger King and Tim Hortons said in a joint statement confirming the talks Sunday night.

Burger King opened up more than 14%. Tim Hortons opened up more than 18%.